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From 2 Rivals, 2 Prescriptions

Senator John McCain spoke of his economic proposals Tuesday in Blue Bell, Pa., near Philadelphia. Senator Barack Obama was at an Ohio resort preparing for Wednesdays debate.Credit
Richard Perry/The New York Times, left; Damon Winter/The New York Times

WASHINGTON — With Senator John McCain unveiling a $52.5 billion package of proposals on Tuesday, both presidential candidates have now outlined their plans for addressing the economic crisis, leaving voters with a clear choice when it comes to one of the biggest challenges the next president will face.

Mr. McCain’s new plans include tax cuts on capital gains and on withdrawals from retirement accounts by people 59 and older, bigger write-offs for stock losses and a tax waiver for unemployment benefits.

Those proposals, which would be effective for two years, complement an overall economic program that hews to the Republican playbook: tax cuts geared especially to individuals and businesses at the top of the income scale, in the belief that they will stimulate the economy and create jobs that benefit everyone.

“If I am elected president,” Mr. McCain said Tuesday in Blue Bell, Pa., “I will help to create jobs for Americans in the most effective way a president can do this, with tax cuts that are directed specifically to create jobs and protect your life savings.”

The $60 billion stimulus package that Senator Barack Obama announced Monday, combined with his longstanding economic agenda, reflect Democratic emphasis on tax cuts intended for middle-class and low-wage workers and for the smallest businesses, as well as spending increases for public works to create jobs.

In setting out his approach on Monday, Mr. Obama predicted that in the long run he would create “five million new, high-wage jobs” by investing in renewable-energy industries and “two million jobs by rebuilding our crumbling roads, schools and bridges.”

Even with the new proposals, which come on top of the hundreds of billions of dollars the government has already committed to bail out financial institutions and other faltering corporations, both candidates continue to promise that as president they would reduce the ballooning annual budget deficits, without forfeiting any of the big-ticket promises they made pre-crisis.

Mr. McCain stands by his vow to extend the Bush tax cuts and to layer on several more, including a big reduction in corporate income taxes. And he still insists he would balance the budget by the end of his first term in 2013, though few analysts, if any, believe that is possible.

Mr. Obama vows to reduce deficits, while keeping his early promises for near-universal health care coverage and more. Because oil prices have been falling, he has shelved a proposal to offset the estimated $65 billion cost of his proposed tax rebates to the middle class with a windfall-profits tax on oil companies, leaving himself an even bigger budget gap.

“Before the crisis, neither of them was telling how it really was going to be,” said the economist Robert D. Reischauer, president of the Urban Institute and a former director of the Congressional Budget Office. “Now one really doesn’t know how it’s going to be because we seem to have blown away any notion of fiscal limitations.”

“At some point,” Mr. Reischauer added, “we as a nation are going to have to ask, ‘Where are we going to get the money to do all this, and at what price?’ That’s the question no one can answer.”

For now, both parties have taken the position that action is more important than short-term budget discipline. The politics of the moment, less than three weeks from the election, almost demanded that the candidates flesh out their philosophical approaches with detailed proposals to try to mitigate the effects of what could be a serious recession.

“Combine a time of potential national crisis with the last weeks of an election, and you have two powerful forces for politicians to show they care through a smorgasbord of supposedly new policies,” said C. Eugene Steuerle, vice president of the nonpartisan Peter G. Peterson Foundation, which was formed to raise awareness about the nation’s economic challenges.

Whatever the relative merits and flaws, both candidates’ proposals would most likely have some short-term benefit for investors, homeowners, retirees and other groups.

They have been less forthcoming about the longer-term challenges facing the economy, from a low savings rate to the related problem of an aging population and rapidly rising costs of the two big entitlement programs, Social Security and Medicare.

Besides their own proposals, the candidates’ different approaches have been evident in their responses to the emergency actions of the Bush administration. Mr. Obama gave early public support to the Treasury’s move this week to inject $250 billion into major banks. Mr. McCain was silent on the approach for days as the action was under consideration; his party’s free-market conservatives were outraged by the plan, and Mr. McCain’s economic adviser, Douglas Holtz-Eakin, said it was “not the way things should be done in the United States.”

The capital injection plan was widely credited with steadying the financial markets in the last two days, and on Tuesday Mr. McCain gave grudging approval. He told a reporter in Florida, “Well, I feel we’re in a crisis, but I want us out of the banking business as quickly as possible.”

Mr. Obama, like other Democrats, would provide billions in aid to strapped states, which have fewer revenue-raising options, so they can keep financing public works and avoid cutting education and Medicaid health programs — by far the states’ biggest expenses. Mr. McCain, like Republicans generally, opposes sending more money to states and cities, maintaining that it discourages them from cutting spending.

Mr. Obama has proposed several actions that could be taken in a lame-duck session of Congress, before the next president takes office. For example, he has called on the Democratic-controlled Congress to expedite his proposed middle-class tax cut of $500 for individuals and $1,000 for couples so that the Internal Revenue Service could potentially get rebate checks to taxpayers before Inauguration Day on Jan. 20.

Mr. McCain mostly has proposed steps that he has said he would pursue after he is president, though advisers say a lame-duck Congress could pass the tax breaks proposed on Tuesday. Those would be for tax years 2008 and 2009, meaning taxpayers would not see the first benefits for months after January.

That $52.5 billion plan is on top of Mr. McCain’s announcement last week that, as president, he would order his Treasury secretary to begin buying up to $300 billion in troubled mortgages from lenders, and replace them for the homeowners with government-guaranteed mortgages reflecting their homes’ lower value. While Mr. McCain initially said that lenders would cover the cost, a day later his campaign said that taxpayers would do so.

On Tuesday, Mr. Obama called the McCain mortgage plan one of his “very bad ideas.” But the mortgage relief has also drawn opposition from the right, including Republican leaders in Congress, casting doubts on the proposal’s prospects. Administration officials are critical of Mr. McCain’s plan to use the government’s $700 billion bailout funds, since that money is for propping up struggling financial institutions nationwide. And Americans scraping to pay their mortgages are already objecting to bailing out others.

But Mr. Holtz-Eakin, in a conference call with reporters on Tuesday, said the benefits would go far beyond the homeowners saved from losing their homes. “Then the houses as a result do not sit vacant and lead to neighborhood blight,” Mr. Holtz-Eakin said. “We stabilize the housing values for every American homeowner who has seen their house values fall and their property taxes go up. We break that cycle.”

The tax breaks would mostly go to older Americans. Whatever their policy benefits, they could hold political gains in a group that is about 40 percent of the electorate and whose support Mr. McCain has been losing.

“It’s not clear that either of these plans would do much good,” said Leonard Burman, director of the nonpartisan Tax Policy Center. “But the benefits of Obama’s plan would be more widely distributed. McCain’s tax proposals would help most those with pretty high incomes — the group least in need of assistance.”

Mr. McCain’s most costly proposal, at $36 billion, would let people 59 and older who withdraw money from IRAs or 401(k) plans pay a tax rate of 10 percent, instead of current rates of up to 35 percent for the most affluent “to help the seniors who are counting on their retirement accounts to manage their lifestyles,” Mr. Holtz-Eakin said.

But where Mr. McCain proposed a lower tax rate for older Americans who do withdraw money, including the wealthy, Mr. Obama would help younger savers who tap into their retirement accounts to get by in the downturn. He would waive the 10 percent tax penalty for withdrawals before age 59 1/2. Many economists object that doing so would further reduce the already low savings rate in the United States.